The euro is the problem – someone needs to say it!

I remember distinctly arriving in the south of Spain from Germany for a five-month stay in early 1998, and sitting in a pizza parlour noting that it was pretty much one peseta to one pfennig – there were around 90 pesetas to the deutschmark. I opened a guidebook my parents had given me from a generation beforehand, which noted that at the time that there were 11 deutschmarks to the pound sterling and 70 pesetas. The maths are not difficult – the peseta had devalued versus the deutschmark so dramatically that, from the early ’70s to the late ’90s, the average German resident’s income had doubled compared to a Spanish resident’s due solely to currency differentials alone every two years.

As I looked out into the February heat over the wonderful city of Granada, Spain’s reliance on the tourist trade (and thus on cheap currency) was not hard to understand; as I drifted up into the Andalusian pueblos to where they grew the olives (cheap currency is good for that too) it was noteworthy, however, that the machinery used to crush them was German – a quality, necessary engineering product not needing cheap currency at all. This is grossly simplified, but it is still not a million miles from the trading truth that the German engineer went on holiday to Spain and brought home some olives while he was at it and, with the proceeds, the Spanish bought his machinery – for this arrangement to work, Spain had to be ever cheaper (and thus devalue its currency versus the deutschmark regularly).

The following year, in 1999, this perfectly successful arrangement for both sides abruptly ended. Spain could no longer devalue its currency versus the deutschmark because, in effect, it was using the deutschmark! The outcome was that the Spanish, to make ends meet in the new reality where they could no longer rely on cheap currency, had to go on a mad construction and credit binge – which ended, when the bubble finally burst on the realisation that this was nothing but money from thin air – in a horrendous 25% unemployment rate.

So when is someone finally going to say it? The euro doesn’t work; it could never possibly work; and it has to be dismantled so we can return to the type of trading relationship which actually suits all Europeans?

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6 thoughts on “The euro is the problem – someone needs to say it!

  1. The dollar works perfectly well across the United States, as does the ruble across the Russian Federation. There isn’t so much a problem with the euro as with the government of Europe. We need a United Europe with strong centralised fiscal controls. Unfortunately, the British vetoed central fiscal control during the negotiations leading to the creation of the euro, and then opted out.

    • That is at least the honest alternative. Either we have a European superstate, or we don’t.

      But, let’s be realistic, the UK and Spain can barely stay together. Russia and the United States grew outwards and thus have common historical bonds. Europe doesn’t. It can’t even tempt Norway and Switzerland into the existing arrangement!

      I am pro-European. I consider myself European. I want Europe to be successful. But that will happen by accepting our diversity and developing administrative and fiscal structures accordingly, not by wishing it away.

  2. harryaswell says:

    Actually, many many people, and countries, have been saying the Euro is a disaster for quite some time. However, it is the corner stone of that clever plot to remove all powers and soverenty from local government and place it all in the hands of Brussels. A United Europe in other words. I certainly do not like that idea one bit, since it means being governed from Brussels by un-elected supremos! Indeed, the Euro should be scrapped for all our sakes. Or, is it that we are too late?

  3. The Listner says:

    Or to put it another way….. If the dream of Monet and others were to be followed and a united, at least fiscal, Europe were to be achieved, with rich countries accepting large transfes of wealth to poorer countires then the Euro would have a level playing field.

    In fact the Euro was a feasible currency at the outset where all the countries using it were relatively rich with a tiddler like Ireland all would have been well especially for Ireland!

    The dreams of ever greater curncy cohesion with the new countries joining post 1990 was I am afraid, the nemisis of the Euro. Either it now must be dismantled or retained only for the “rich club rto include those countries like the Czech Republic, Hungary and Poland which are now rich countries, or getting there, with Ireland once more morphing into that category. In such a situation the UK could consider joining.

  4. Clare says:

    I think the problem is that the actual project towards ‘ever closer union’ is taking precedence over the fact that the currency union isn’t working.
    In other words those hell bent on European Union are considering the problems as secondary and are willing to do almost anything to prevent the collapse of the project.
    It’s causing countless misery and Greece is but the beginning I am afraid.

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